The effect of stress state on the initiation of damage for leaded free cutting steel has been investigated under hot rolling conditions. Double notched (DN) circumferential tension samples were designed and used to simulate damage development at different stress states and deformation conditions using a Gleeble (3800) thermal-mechanical testing system. Two DN sample geometries with varying notch profiles were used to account for different states of stress. To simulate the conditions of hot rolling the samples were tested at high temperatures (900–1200 °C) and moderate strain rates (0.1–1 s−1). After testing to failure, which normally occurs at one notch of the specimen, the unfailed notch of each sample was sectioned to examine the sites where damage occurs since the material has been captured in a state very close to failure. Two of the cases examined have shown definitive damage paths occurring from ‘outside–in’ for a sharp notch deformed at T = 900 °C and from ‘inside–out’ for a blunt notch tested at T = 1200 °C for the same strain rate of 0.1 s−1. The experimental results of the failure initiation sites were compared with computed values of the stress fields around the notch profiles, obtained from FE analysis using a set of viscoplastic constitutive equations calibrated for free cutting steel. The temperature profiles from high temperature mechanical testing were used in the FE calculations of the stress state.